Analysis | Gold rush: Chinese tech companies invest overseas
Having established their dominance at home, leading Chinese tech companies are increasingly turning their gaze overseas
Lenovo CEO Yuanqing Yang celebrated the tech company’s acquisition of a Chicago-based smartphone brand in October 2014 in a distinctly Chicago way. His firm had just closed its purchase of Motorola Mobility from Google for $2.91 billion plus roughly 6% of Lenovo’s shares. To mark the occasion, Yang, another executive and the smartphone firm’s president chowed down a deep dish pizza decorated with a Motorola logo.
Lenovo’s purchase was just one overseas acquisition in a busy year for China’s technology industry. China Mobile invested more than a billion dollars in telecom companies in Pakistan and Thailand; Lenovo spent $2.3 billion on IBM’s low-end server business in the US; Huaxin bought 85% of French telecom company Alcatel-Lucent; Alibaba spent $220 million for a 20% stake in mobile video app Tango and joined in a $250 million fundraising round for car service Lyft; and Baidu invested in Uber and opened a $300 million research and development (R&D) center in Silicon Valley to take advantage of local talent—to name just a few.
Analysts have been hesitant to label this a trend, but there are reasons to believe that China’s recent boom in outbound tech investment will continue. China’s tech sector is flush with cash, and the increasingly competitive domestic market has left companies anxious to acquire new technologies and capacities abroad in order to compete at home.
“Some people are going to be tempted to say the government has been pushing this for a long time, investing at home but also overseas, but I don’t think it’s really that,” says Michael Clendenin, founder and Managing Director of China-based research company RedTech Advisors. “It’s just business 101. Look everywhere you can under every rock for any type of resource that is going to help you further your business goals. It just so happens that Chinese tech companies are... looking under rocks all over the world.”
Powering the Boom
China’s investments abroad have in recent years continued to ramp up sharply, creating huge opportunities for partnership with foreign companies. Chinese outbound direct investment grew from $2.7 billion in 2002 to a stunning $102.9 billion in 2014, according to data from the Chinese Ministry of Commerce—a nearly 40-fold increase in only 12 years.
The potential for future investments is huge: Rhodium Group, which monitors Chinese outbound investment, estimates that over this decade Chinese outbound investment will reach up to $2 trillion. The government projects that outbound investment will soon be larger than foreign direct investment (FDI) into China, as Chinese firms increasingly venture out.